Commission management system

ABSTRACT

The present invention relates to a commission management system and method for managing soft dollar and commission recapture services over communications network. The system and method pays the invoices from the soft dollar commission account after the client views and approves invoices online.

RELATED APPLICATION

[0001] This application is a continuation-in-part application of U.S.Provisional Patent Application Serial No. 60/378,113 filed May 14, 2002,which is incorporated by reference in its entirety.

BACKGROUND OF THE INVENTION

[0002] The present invention relates a commission management system,more particularly a commission management system for managing softdollar and commission recapture services.

[0003] Successful investing in stocks and bonds can be viewed verysimply as a combination of buying a “good thing” and doing a good jobnegotiating the purchase. Since the processes of deciding what's “good”and executing the transaction well can require complex research andprofessional trading skills, many investors rely on professional moneymanagers to decide the “what” and professional traders (chosen by themoney manager) to handle the transaction.

[0004] Historically, many brokerage firms have provided the investorwith research to aid the investment decision and trading skill toexecute the transaction in return for a commission. So, as a logicalconstruct, the commission a broker is paid has a component associatedwith providing research and advice to the client and a componentassociated with performing the trade. Research is the foundation of themoney management industry. Soft dollar arrangements developed as a linkbetween the brokerage industry's supply of research and the moneymanagement industry's demand for research.

[0005] Brokerage firms typically provide a bundle of services includingresearch and execution of transactions. The research provided can beeither proprietary or third party. Because commission dollar pay for theentire bundle of services, the practice of allocating certain of thesecommission dollars to pay for the research component has come to becalled “soft dollars”.

[0006] Since the early days of the brokerage industry, full-servicebrokerage firms (i.e., broker-dealers) have provided research and otherservices to customers in addition to executing trades as part of anoverall package of services provided to customers. The costs of theseservices generally are not separately itemized or billed to customers ofbrokerage firms, but are considered part of the overall services.Customers have always paid for this in-house (or proprietary) research,as well as other services, with commissions.

[0007] As market forces and the regulations surrounding investing haveevolved, some brokerage firms remain in both the advice business and thetrading business. Other brokerage firms opted to focus their resourceson trading expertise only, providing their clients the opportunity topurchase third-party independent research to aid their investmentdecisions. The cost of third-party research is more easily quantifiablethan the cost of proprietary research. To be within the safe harbor ofresearch under Section 28(2) of the Exchange Act, the research must be“provided by” the broker. The research may be delivered directly to theadviser by the third party research provider, but the broker must beobligated to pay for the research services. However, if the client, suchas plan sponsors, foundations, etc., does not require or require minimalresearch advice or services from the brokerage firms, the client cantypically recapture the advice/research portion of the commission. Thatis, commission recapture programs in effect permit the client, insteadof the adviser, to reap the benefit of the cost of soft dollars builtinto the institutional brokerage commissions. However, many adviserslack centralized management or control over the receipt of products andservices for soft dollars. Typically, soft dollar decision-making occursin an uncoordinated fashion at several functional levels.

[0008] Therefore, it is desirable to have a commission management systemfor managing these various soft dollar and commission recapturearrangements. The commission management system of the present inventionprovides a centralized management and control over the receipt ofproducts and services (i.e., research) for soft dollars.

OBJECTS AND SUMMARY OF THE INVENTION

[0009] An object of the present invention provides commission managementsystems for managing soft dollar and commission recapture services.

[0010] It is an additional object of the present invention to providethe commission management system as aforesaid over a communicationnetwork accessible by advisers and client.

[0011] The foregoing has outlined rather broadly the features andtechnical advantages of the present invention in order that the detaileddescription of the invention that follows may be better understood.Additional features and advantages of the invention will be describedhereinafter which form the subject of the claims of the invention. Itshould be appreciated by those skilled in the art that the specificconcepts and specific embodiments disclosed may be readily utilized as abasis for modifying or designing other structures for carrying out thesame purposes of the present invention. It should also be realized bythose skilled in the art that such equivalent constructions do notdepart from the spirit and scope of the invention as set forth in theappended claims. The novel features which are believed to becharacteristic of the invention, both as to its organization and methodof operation, together with further objects and advantages will bebetter understood from the following description when considered inconnection with the accompanying figures. It is to be expresslyunderstood, however, that each of the figures is provided for thepurpose of illustration and description only and is not intended as adefinition of the limits of the present invention.

BRIEF DESCRIPTION OF THE DRAWINGS

[0012] For a more complete understanding of the present invention,reference is now made to the following descriptions taken in conjunctionwith the accompanying drawing, in which:

[0013]FIG. 1 is a block diagram of a communications network,specifically the Internet, which incorporates the commission managementsystem (CMS) in accordance with an embodiment of the present invention;

[0014]FIG. 2 is a block diagram of the commission management system ofFIG. 1 in accordance with an embodiment of the present invention;

[0015]FIG. 3 is an exemplary screen shot of the CMS portal home page inaccordance with an embodiment of the present invention;

[0016]FIG. 4 is an exemplary screen shot of a client statement screen ofthe client statement module 210 in accordance with an embodiment of thepresent invention;

[0017]FIG. 5 is an exemplary screen shot of a current account statusscreen of the client statement module 210 in accordance with anembodiment of the present invention;

[0018]FIG. 6 is an exemplary screen shot of a investment services listscreen of the investment services directory module 240 in accordancewith an embodiment of the present invention;

[0019]FIG. 7 is an exemplary screen shot of a contracts list screen ofthe client contracts module 230 in accordance with an embodiment of thepresent invention;

[0020]FIG. 8 is an exemplary screen shot of a contract alerts screen ofthe client contracts module 230 in accordance with an embodiment of thepresent invention;

[0021]FIG. 9 is an exemplary screen shot of a bill or invoicepresentment screen of the client invoice module 220 in accordance withan embodiment of the present invention;

[0022]FIG. 10 is a flow chart of detailing the process of managing softdollar commission in accordance with an embodiment of the presentinvention;

DESCRIPTION OF THE EMBODIMENTS

[0023] The present invention is readily implemented using presentlyavailable communication apparatuses and electronic components. Theinvention finds ready application in virtually all communicationssystems, including but not limited to intranet, local area network(LAN), wireless LAN (WLAN), wide area network (WAN), Internet, privateor public communication networks, wireless networks, satellite networks,cable networks or other online global broadcast networks.

[0024] In soft dollar arrangements, an investment adviser selects thebrokers that will execute trades and provide research and other servicesto the adviser. In contrast, in a directed brokerage arrangement, aclient asks its adviser to direct commission business to a particularbroker that has agreed to provide services, pay obligations or make cashrebates (i.e., commission recapture) to the client.

[0025] Under a directed brokerage arrangement, while the adviser makesinvestment decision for the client, the client (often a qualified plansponsor on behalf of the plan) selects the broker that will execute theclient's trades in return for services from brokers. Unlike the softdollar arrangements, the advisers do not receive products or services ina directed brokerage arrangement (i.e., commission recapture), butadvisers' clients receive the products, services or cash rebatesgenerated by their commissions.

[0026] It is appreciated that soft dollar credits or commissionrecaptures can be used in variety of securities transactions, includingbut not limited to: fixed-income, listed equities, OTC equities, foreignequities, options, syndicate, futures contracts, ADRs, newissues/secondary offerings, and the like. Also, brokerage firms canprovide soft dollar credits on agency basis.

[0027] Some financial institutions, such as The Bank of New York Company(BNY), own a number of institutional agency brokerage firms that focustheir resources on developing trading expertise and providing tradingservices. The clients of these institutional agency brokerage firms aretypically money managers who represent end-clients like mutual funds andpension funds. The agency brokerage firms typically choose to focustheir capital and expertise on execution (trading) services rather thanon in-house research departments. In accordance with an embodiment ofthe present invention, the commission management system enables theseagency brokerage firms to efficiently manage their various soft dollarand commission recapture arrangements over a communications network.

[0028] The agency brokerage firms can provide a variety of products andservices to advisers via third party research providers or vendorsincluding pricing service, news services, portfolio management,accounting, equity analysis, fixed-income analysis and the like. Section28(e) affords safe harbor protection for research and related servicespaid for with commission on agency transaction in securities.

[0029] For example, a mutual fund hires a money manger or adviser, suchas Smart Money Management, to manage a number of retail mutual funds.Smart Money employs research analysts to make investment decisions forits clients. The research analysts have a high demand for informationand opinions about companies to invest in. Smart Money has a choicebetween two different types of brokerage firms who compete to executeits analysts' decisions: full service brokerage and agency brokeragefirms.

[0030] In the exemplary application of the present invention, the agencybrokerage firm charges six cents commission but does not provide anyin-house research. Instead, the agency brokerage firm negotiates anarrangement with Smart Money that stipulates that four cents of thetotal six cents paid in commission will be held in an “soft dollar”account at the agency brokerage firm on Smart Money's behalf forinvestment or research related expenses. Alternatively, the clientutilizes another brokerage firm, which also charges six centscommission, to execute trades. The other brokerage firm provides fourcents of the total six cents paid in commission to the agency brokeragefirm to be credited to the soft dollar account at the agency brokeragefirm on Smart Money's behalf for investment related expenses. Theseaccumulated “soft dollars” is used by the agency brokerage firm to payfor the provision of third-party research to assist Smart Money'sanalysts in the investment decision. Generally, the agency brokeragefirm contracts with independent researchers, market data vendors, etc.to provide products and services to Smart Money. The bills for suchservices utilized by Smart Money are then paid by the agency brokeragefirm from Smart Money's soft dollar account upon approval by Smart Moneythat the bill is valid and appropriate. The agency brokerage firmreports to Smart Money the balance and activity in the soft dollaraccount on a periodic basis, such as quarterly or monthly basis. It isappreciated that this all takes place in an environment highly regulatedby the Securities and Exchange Commission (SEC) that requires both theagency brokerage firm and Smart Money to carefully evaluate, approve,and document what is purchased with soft dollars.

[0031] The SEC recognizes that the commissions paid by a money managerto a broker are the property of the end client—the fund, pension plan orpool of investors on whose behalf the manager is acting. Consequently,it allows institutional investors with a low demand for research(typically pension plans) to enter into arrangements where the researchor “soft” component of the commission is returned directly to the planrather than used for buying products or services. Such arrangements arecommonly referred to as a directed brokerage or commission recapturearrangement.

[0032] In accordance with an embodiment of the present invention, asystem is provided to manage the soft dollar commission. The inventivesystem enables clients to purchase third-party research product/servicesor investment services and to view and approve charges for suchpurchase. Additionally, the inventive system stores or documentsclients' purchases and charges associated with such purchases, andfacilitates soft dollar payment of approved charges to the appropriatethird-party research provider.

[0033] In accordance with an embodiment of the present invention, theinventive system interfaces with any commission management/accountingsystem to extract the requisite information (or statement) to prepareand present the invoice (or bill) to the client for its purchases of thesoft dollar products/services. In accordance with an aspect of thepresent invention, the inventive system monitors the commissionaccounting system for predetermined events and extracts information fromthe commission accounting system upon an occurrence of pre-determinedevent.

[0034] Turning now to FIG. 1, there is illustrated a block diagram of acommunications network 100, specifically the Internet, whichincorporates the commission management system (CMS) 200 in accordancewith an embodiment of the present invention. The commission managementsystem 200 of an agency brokerage firm is connected to computers,servers, databases, networks, and the like of various clients 110,research/investment service providers 120 and third party brokers 130over the communications network 100.

[0035] In an application of the present invention, the agency brokeragefirm generally has contractual relationship with manyresearch/investment service providers 120 so it can provide suchproducts and services to its clients, e.g., money mangers, advisers, andthe like. For example, the investment service providers 120 can providevarious research/investment products and/or services, such as computerterminals (i.e., Bloomberg terminals), investment advice, market feeds,research reports, etc. The clients 110, i.e., money managers, advisersand end-clients, can access the CMS 200 over the communications network100 to purchase one or more investment services/products of variousinvestment service providers 120 from the agency brokerage firm usingtheir soft dollar commission accounts. In accordance with an embodimentof the present invention, the CMS 200 is an Internet portal or anapplication residing on a web server that can be accessed by the clients110 and the investment service providers 120 over the Internet 100.

[0036] Turning now to FIG. 2, there is illustrated a CMS 200 inaccordance with an embodiment of the present invention. The CMS 200comprises a client statement module 210, a client invoice module 220, aclient contracts module 230, an investment services directory module240, and a web interface module 250. The client 110 can access the CMS200 of the present invention over the communications network 100. Afterthe client 110 has been successfully verified by the CMS 200 using anysecurity verification means, such as userid/password verification, theweb interface module 250 displays an exemplary portal home page screenof FIG. 3. The portal home page has various navigational tabs to enableusers to quickly access various modules of the CMS 200, such as theclient statement module 210. As shown in FIG. 3, a section of the portalhome page informs the client 110 of various information or data thatneeds their attention, such as new statements or invoices from theinvestment service providers 130. In accordance with an embodiment ofthe present invention, these data (invoices and/or statements) havehyperlinks to the appropriate page(s) in the CMS 200 to enable theclient to view and attend to the information, such as approvinginvoices. Another section of the portal home page can provide marketdata, informative updates regarding the agency brokerage firm'sbusiness, and the like.

[0037] The client statement module 210 periodically (such as monthly,quarterly, etc.) generates and provides soft dollar commissionstatements (or commission recapture statements) dynamically to theclients 110 through the web interface module 250 as shown in FIG. 5 ordownloadable files, such as Adobe Acrobat PDF (.pdf) files, which can beretrieved by the clients 110 through the web interface module 250. Also,as shown in FIG. 5, the clients 110 can view their current accountstatus (i.e., obtain a “snapshot” of their account) online by accessingthe client statement module 210 via web interface module 250 over thecommunications network 100. It is appreciated that the client statementmodule 210 can interface with any known or proprietary commissionmanagement/accounting system to extract the necessary information togenerate the soft dollar commission statement. As shown in FIG. 5, theclient can view the statements by month or by type (such as summarystatement, detail statement, payment detail and trading detail). Inaccordance with an embodiment of the present invention, the clients 110can select individual data elements to appear in their statement. Thatis, the client statement module 210 generates or calculates the clientstatements based on the data elements selected by the client 110.

[0038] As shown in FIG. 6, the investment services directory module 240provides a directory of investment services/products from variousinvestment services providers 120 that can be purchased using the softdollar commissions by the clients 110. The directory can provideinformation about the investment products/services and/or the investmentservice provider, such as description of the product/service, vendorcontact information, description of the vendor, cost of theproduct/service, etc. It is appreciated that the investment serviceprovider 120 can access its records in the investment services module240 over the communications network 100 to update or change any of itsinformation, or add new products/services.

[0039] When a client 110 selects a particular investment product/serviceto purchase, the investment service provider 120 offering such selectedinvestment product/service sends the contract to the client 110. It isappreciated that the contract can be sent to the client 110 via anyknown means, such as electronically, by facsimile, mail, etc.Alternatively, the client 110 may agree to be supplied under (or signonto) an existing agreement between the agency brokerage firm and theinvestment service provider 120, e.g., the agency brokerage firm mayhave bulk hardware or software agreement with a particular investmentservice provider or vendor 120. The client contracts module 230 receivesand stores all executed contracts. The client contracts module 230 canreceive the executed contracts electronically or can scan the hard copyof the executed contracts received via mail, facsimile and the like. Asshown in FIG. 7, the clients 110 can view or download copies of theirexecuted contracts with various investment service providers 120 byaccessing the client contracts module 230 via the web interface module250 over the communications network 100. In accordance with anembodiment of the present invention, the clients 110 can selectindividual data elements to appear in their contract list screen. Thatis, the client contracts module 230 displays the contracts list based onthe data elements selected by the client 110. Additionally, inaccordance with an embodiment of the present invention, the clientcontracts module 230 generates a contract alert page for a given clientas shown in FIG. 8 displaying all contracts that are up renewal or haveterminated and require client's attention.

[0040] After a client 110 has purchased one or more investmentproducts/services offered by various investment service providers 120through the CMS 200, the client invoice module 220 receives invoicesfrom the investment service providers 120 on behalf of the purchasingclients 110 and presents the invoices to the clients 110 for approval.Upon receipt of an invoice on behalf of a client 110, the client invoicemodule 220 notifies the client 110 of the invoice electronically, suchas email, instant messaging, etc. As shown in FIG. 9, the client 110 canview, approve or download copies of the invoices by assessing the clientinvoice module 220 via the web interface module 250 over thecommunications network 100. It is appreciated that upon approval of theinvoices by the client 110, the agency brokerage firm then initiatessteps to pay the approved invoices from client's soft dollar commissionaccount. Also, the client 110 can select an invoice to obtain additionalinformation about the invoice, such as the commitment information andattach comments directed to the investment service provider 120 and/orthe agency brokerage firm. In accordance with an embodiment of thepresent invention, the client may edit an invoice to optionally approveonly a portion of the invoice.

[0041] The process of managing soft dollar commission (and/or commissionrecapture) arrangements in accordance with an embodiment of the presentinvention is now described in conjunction with FIGS. 2 and 10. Theclient 110 accesses the CMS 200 over the communications network 100 instep 300. The CMS 200 verifies the client as being authorized to accessthe various modules of the CMS 200 in step 310. Upon successfulverification of the client, the CMS 200 displays the portal home page ofFIG. 3 to the client in step 320, thereby enabling the client 110 toselect the desired task or navigate to one of the modules to viewstatements, directory of investment products/services, invoices, andcontracts. If the client 110 selects the client statement module 210 instep 320, then the client statement module 210 displays the clientstatement screen of FIG. 4 in step 330, thereby enabling the client 110to view its monthly summary statement. Alternatively, the clientstatement module 210 displays the current account status screen of FIG.5 in step 330, thereby enabling the client 110 to view its currentaccount status.

[0042] If the client 110 selects the client invoice module 220 in step320, then the client invoice module 220 displays the invoice presentmentscreen of FIG. 9 in step 340, thereby enabling the client 110 to viewand approve invoices from the various subscribed investment serviceproviders 120.

[0043] If the client 110 selects the client contracts module 230 in step320, the client contracts module 230 displays the contracts list screenof FIG. 7 in step 350, thereby enabling the client to view its executedcontracts with various investment service providers 120.

[0044] If the client 110 selects the investment services directorymodule 240 in step 320, the investment services directory module 240displays the investment services list screen of FIG. 6 in step 360,thereby enabling the client 110 to view all of the investmentproducts/services available from various investment service providers120.

[0045] Although the present invention and its advantages have beendescribed in detail, it should be understood that various changes,substitutions and alterations can be made herein without departing fromthe spirit and scope of the invention as defined by the appended claims.Moreover, the scope of the present application is not intended to belimited to the particular embodiments of the process, machine,manufacture, composition of matter, means, methods and steps describedin the specification. As one of ordinary skill in the art will readilyappreciate from the disclosure of the present invention, processes,machines, manufacture, compositions of matter, means, methods, or steps,presently existing or later to be developed that perform substantiallythe same function or achieve substantially the same result as thecorresponding embodiments described herein may be utilized according tothe present invention. Accordingly, the appended claims are intended toinclude within their scope such processes, machines, manufacture,compositions of matter, means, methods, or steps.

What is claimed:
 1. A method for managing soft dollar commissionaccounts over a communications network, comprising the steps of:subscribing to one or more investment products/services from a pluralityof investment service providers by a client over said network; creditinga soft dollar commission account of said client upon execution of tradeson behalf of said client; presenting invoices for said subscribedinvestment products/services to said client over said network; approvingsaid invoices by said client over said network; and paying said approvedinvoices from said soft dollar commission account.
 2. The method ofclaim 1, further comprising the step of periodically presentingstatement of said soft dollar commission account to said client oversaid network.
 3. The method of claim 2, wherein the step of periodicallypresenting statement comprises the step of extracting statements from acommission management system over said network.
 4. The method of claim1, wherein the step of subscribing comprises the step of scanning andstoring executed contracts relating to said subscribed investmentproducts/services.
 5. The method of claim 4, further comprising thesteps of selecting an executed contract for display by said client oversaid network; and retrieving and displaying said selected executedcontract to said client over said network.
 6. The method of claim 4,further comprising the steps of determining termination or renewalstatus of executed contracts of said client; and notifying said clientof said termination and renewal status over said communications network.7. The method of claim 1, wherein the step of crediting comprises thestep of determining said soft dollar commission from per sharecommission associated with executing trades on behalf of said client. 8.The method of claim 1, wherein the step of crediting comprises the stepof receiving said soft dollar commission from another brokerage firm. 9.A computer readable medium comprising code for managing soft dollarcommission accounts over a communications network, said code comprisinginstructions for: subscribing to one or more investmentproducts/services from a plurality of investment service providers by aclient over said network; crediting a soft dollar commission account ofsaid client upon execution of trades on behalf of said client;presenting invoices for said subscribed investment products/services tosaid client over said network; approving said invoices by said clientover said network; and paying said approved invoices from said softdollar commission account.
 10. A system for managing soft dollarcommission accounts over a communications network, comprising: aninvestment services directory module displaying investmentproducts/services from to a plurality of investment service providers toclient over said network and receiving one or more subscribed investmentproducts/services from said client over said network; a processor forcrediting a soft dollar commission account of said client upon executionof trades on behalf of said client; and an invoice module for presentinginvoices for said subscribed investment products/services to said clientover said network, receiving approval of said invoices from said clientover said network, and paying said approved invoices from said softdollar commission account.
 11. The system of claim 10, furthercomprising a statement module for periodically presenting statement ofsaid soft dollar commission account to said client over said network.12. The system of claim 11, wherein said statement module is operable toextract statements from a commission management system over saidnetwork.
 13. The system of claim 10, further comprising a contractsmodule for scanning and storing executed contracts relating to saidsubscribed investment products/services.
 14. The system of claim 13,wherein said contracts module is operable to retrieve and display anexecuted contract selected by said client over said network.
 15. Thesystem of claim 13, wherein said contracts module is operable todetermine termination or renewal status of executed contracts of saidclient, and notify said client of said termination and renewal statusover said communications network.
 16. The system of claim 10, whereinsaid processor is operable to determine said soft dollar commission fromper share commission associated with executing trades on behalf of saidclient.
 17. The system of claim 10, wherein said processor is operableto receive said soft dollar commission from another brokerage firm.